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How To Close A Limited Company That Never Traded

How To Close A Limited Company That Never Traded

The process of closing a limited company is straightforward when it has become dormant or never traded. It starts with filling out the form DS01 – the application form to strike off the business from the Companies House register. This needs agreement of all the business directors to complete.

Not all business ventures take off, and it’s entirely possible for a limited company to be set up but never start to trade. When this happens, it’s important to close the company officially in order to prevent on-going administration payments and the need to file company accounts annually.

In this article, we will explain how to close a limited company, the duration of the process and other related questions you might have.

How Do You Close A Limited Company?

Learn how to close a limited company that never traded using the following steps:

  1. Seek approval from all the directors and shareholders of the limited company.
  2. Proceed to complete the DS01 application form to strike off the company from the Companies House register.
  3. Submit the completed form to the Companies House with a £10 filing fee.
  4. Wait for three months during which your submitted application to strike off is advertised in the Gazette.
  5. Once the three months elapse and nobody raises an objection, the business will be struck off the Companies House register. The company would then cease to exist as a legal entity.

How Do I Close A Limited Dormant Company?

According to the HMRC, a dormant company is a business that is inactive and not currently trading. As such, the company has not generated any income for the tax year and is not liable for VAT, PAYE or Corporation tax. The taxes would not be required during the application to close the company provided you can prove that the company has not traded in any form and has no income.

A major criterion to close such a limited dormant company is to seek approval from all the directors and shareholders. The collective agreement of every business partner is mandatory to fill out and submit the form DS01 after paying the £10 filing fee to the Companies House.

Companies House would then publicly publish a notice concerning the intended closure of the limited company in the Gazette for three months. The aim is to inform any third party involved about the application to close the company and the closure becomes confirmed if there are no objections within that period.

Should I Close My Limited Company Or Make It Dormant?

The first consideration is whether you intend to start trading again in the future. If the plan is to only go dormant for a specified period, we advise you to keep your company documents and registration with Companies House to prevent other companies or competitors using your established trading name.

Only proceed to shut down the limited company when you are certain that you would not trade again. There is no point in renewing the registration of a business that is not going to bring income or trade.

How Quickly Can You Close A Limited Company?

The exact time it takes to close a limited company will vary depending on whether there are any objections to the proposed closure. The minimum period is three months since that is the duration for which the Companies House will publicly publish the closure notification in the Gazette for third parties to raise objections if any.

The absence of objections for those three months would lead to approval of the request to close down the limited company. Conversely, received objections can significantly delay the process. Your company would have to respond and resolve separate objections before the Companies House can proceed with the planned closure.

How Much Does It Cost To Close A Limited Company UK?

The total cost to close a limited company is certainly the next factor to consider. As a business manager, you need to learn how to calculate how much such a decision would cost. It is even more important if you are undecided about just taking a break or closing down the company.

For dormant limited companies that have never traded, the cost of closing the business is quite low. The usual requirement is to pay a £10 filing fee to submit and process your application to close the company with the Companies House.

The closing costs could be much higher for a company that has unsettled debts. The Companies House would require that such debts be paid or the company be liquidised because debts count as active trades. In such a scenario, the overall cost of striking off the organisation from the Companies House register depends on the value of the debts.

It is always suggested to contact a qualified accountant if there are challenges with estimating the cost of closing your limited company. They can help provide options and alternative routes to resolving issues withholding you from closing the business.

Is It Illegal For A Dormant Company To Trade?

A dormant limited company is considered by the HMRC as any business entity that does not have significant accounting transactions for a specified period. The following are the only transactions permitted for a dormant company:

  • Payment of penalty fees to the HMRC for late filing of account
  • Payments for shares by the first shareholders of the company
  • Payment for re-registration or change of the company name for filing accounts

If a business begins to make transactions during the dormancy period, it will no longer be classified as dormant by HMRC. This means that the company will then be active and required to complete annual tax returns and to pay taxes to HMRC.

Who Can Close A Limited Company?

The application to close a limited company can be initiated by any of the business directors but remains incomplete until all the directors and shareholders give their approvals.

If the company does not have a director or the only director is deceased, a new director will be appointed to approve the closure of the limited company. The decision to appoint a new director or the selection process must involve all the shareholders through a voting process. The candidate with the highest votes then emerges as the new director.

The new director is the one to fill out the form DS01 required to initiate the process to strike off the company. However, the other shareholders must all grant their approvals and collectively pay the £10 filing fee to complete the application to the Companies House.

Can You Set Up A Limited Company And Not Trade?

Yes, setting up a limited company as a dormant entity is a common business strategy employed by managers who are more interested in protecting their future company’s name. By registering the company with the HMRC, they can be sure the name is theirs whenever they decide to trade in the future.

Since the company is dormant, it would not be liable for corporate taxes or filing annual tax returns. It is expected that the company has never traded and there is no income to tax. However, the HMRC classifies the company as active the instant it starts trading.

Unless that happens, the company remains dormant for as long as possible but must continue to submit an annual confirmation statement. That task ensures that Companies House remains updated and accurately represents the status of the company.

What Do I Do If My Company Has Not Traded?

Understanding how to close a limited company that has not traded depends on if it is a new company with zero trading history, or if the company has actively traded in the past.

For a limited company that has never traded, you can start the process by filing for dormant accounts with the Companies House using the form AA02. According to HMRC guidelines, any incorporated company remains dormant until the point of first active trade. That is why new companies that have never traded automatically have a dormant limited company status.

If the company appears to have traded before but isn’t currently doing so, the company director will have to inform Companies House and HMRC of the present dormant state. That would make the company not liable for corporation tax since there was no income or profits.

It remains mandatory for every company to file an account confirmation statement annually even if it has ever traded or not. Companies House uses the content of the document to continually verify the dormant status of companies.

How Long Can A Company Stay Dormant?

When a new company gets registered, it maintains a dormant status until the first active trade. In some cases, the company remains dormant for a significant long period because the owner is not ready to trade and only wants to preserve the company name from likely competitors.

Another reason for keeping a company dormant is when you take a business break or a deserved vacation from work and trading activities. The reasons to maintain a state of dormancy can be genuine, but how long can a company stay dormant?

For as long as possible! There is no time limit on how long you can keep a company dormant status. Depending on your specific reasons, the company can remain dormant for some months or years but there will be stringent restrictions on permitted transactions.

Having any other transaction apart from the ones permitted for dormant accounts will make the limited company active again. It loses the dormancy privilege and will be required by the HMRC and the Companies House to start submitting annual returns.

What Happens When A Limited Company Stops Trading?

There are two available choices for every limited company that stops trading. The first is to make the company dormant or to close the company. There is no obvious “better option” and it all depends on your specific plans for the company.

For instance, making the company dormant is the best option if you plan to later resume trading. There would be no need to file annual tax returns and the company name remains in the Companies House register for whenever you are ready to start trading again.

For business owners who are certain and have decided to not trade again as a limited company, applying to close the company works best. You will not have to submit annual returns or confirmation statements since the company will cease to exist as a legal entity.

In Summary

Closing a company that has never traded is simpler than most people think.

If the final decision is to close down, a director starts the process by getting the DS01 “application to strike off” form. Agreements from other directors and shareholders are also required along with a £10 fee.

The completed form is then submitted to the Companies House and approved if nobody objects to the public announcement of the process within three months.

The process is quite straightforward especially if you follow the suggestions in this guide. We also recommend reaching out to a qualified accountant or business expert before closing a limited company that is no longer trading.

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